Legal Definitions - blind trust

Blind trust refers to a financial arrangement where an individual transfers their assets into a trust, but neither they (the trustor) nor the beneficiary has knowledge of the specific assets held within the trust or how they are being managed after the trust's creation.

An independent trustee is appointed to manage these assets with complete discretion, making investment and divestment decisions without consulting the trustor or beneficiary. The primary purpose of a blind trust is to prevent actual or perceived conflicts of interest, particularly for individuals in positions of public trust or significant corporate influence, by ensuring their personal financial interests do not sway their professional decisions.

• Example 1: A Corporate Executive Joining a Regulatory Body

  Imagine the CEO of a major pharmaceutical company who is appointed to a high-level government committee responsible for approving new drugs and setting healthcare policy. To avoid any suspicion that her decisions on the committee might be influenced by her personal investments in various pharmaceutical stocks, she places all her stock holdings and other financial assets into a blind trust. The independent trustee then manages these assets, buying and selling without her knowledge or input.

  This illustrates a blind trust because the CEO is intentionally kept unaware of the specific assets within her trust and how they are being managed, ensuring her role on the regulatory committee is free from personal financial conflicts.

• Example 2: A Newly Elected Public Official

  Consider a newly elected mayor who previously owned a significant portfolio of local real estate properties and shares in construction companies. As mayor, she will be involved in decisions regarding zoning, urban development, and public works contracts. To demonstrate her commitment to impartial governance and avoid any appearance of impropriety, she transfers all these assets into a blind trust. The trustee independently manages the properties and investments, making all decisions without informing the mayor of the specifics.

  This demonstrates a blind trust's function in preventing conflicts of interest, as the mayor's lack of knowledge about her specific holdings ensures her policy decisions are not influenced by personal financial gain from her real estate or construction investments.

• Example 3: A Senior University Administrator Overseeing Research Grants

  Suppose a senior vice president at a major university is responsible for allocating significant research grants to various departments and external research firms. This individual also holds personal investments in several biotechnology startups that frequently apply for such grants. To maintain integrity and avoid any potential bias in grant allocation, the administrator places these specific startup investments, along with other relevant holdings, into a blind trust. The trustee manages these investments, making decisions to buy or sell without the administrator's knowledge.

  This scenario highlights a blind trust's role in ensuring fairness and preventing conflicts, as the administrator's "blindness" to their specific investments in biotech companies ensures that grant decisions are made solely on merit, not personal financial interest.